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Stocks strengthen; yields, dollar rise on Fed taper talk

EconomyAug 10, 2021 04:36PM ET
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2/2 © Reuters. FILE PHOTO: A man watches an electric board showing Nikkei index outside a brokerage at a business district in Tokyo, Japan, June 21, 2021. REUTERS/Kim Kyung-Hoon/File photo 2/2

By Matt Scuffham

NEW YORK (Reuters) -Global stock markets strengthened on Tuesday, hovering close to record highs, while U.S. Treasury yields rose to their highest levels since mid-July, spurred by Federal Reserve tapering talk.

Sentiment was boosted by the U.S. Senate passing a $1 trillion bipartisan infrastructure bill that could provide the United States with its biggest investment in decades in roads, bridges, airports and waterways.

That helped the Dow Jones Industrial Average and S&P 500 close at record highs.

The Dow Jones Industrial Average rose 162.82 points, or 0.46%, to 35,264.67, the S&P 500 gained 4.4 points, or 0.10%, to 4,436.75 and the Nasdaq Composite dropped 72.09 points, or 0.49%, to 14,788.09.

European shares extended gains for a seventh straight session as investors took comfort from strong earnings reports and economic recovery prospect.

The pan-European STOXX 600 index rose 0.35%.

MSCI's gauge of stocks across the globe gained 0.12%, trading just off the record high it hit last week.

"Domestically and globally, we're seeing economies recovering from the pandemic. It's a good period for investing," said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

The dollar scaled a four-month high versus the euro as investors looked ahead to U.S. inflation numbers on Wednesday for indications of when the world's largest economy might start to withdraw stimulus.

Activity, meanwhile, was heating up in bond markets.

Indications in recent days of an improving labor market have prompted investors to rethink the outlook for U.S. monetary policy, halting recent sharp falls in both U.S. and European bond yields.

Speculation is mounting that Fed Chair Jerome Powell could signal the U.S. central bank is ready to start easing monetary support in a speech to be delivered at the annual Jackson Hole, Wyoming, conference of central bankers.

"Expectations have clearly shifted for Fed Chair Powell to turn hawkish at Jackson Hole and make a formal announcement on tapering asset purchases at the September FOMC meeting," said Ed Moya, senior market analyst at OANDA in New York, using the acronym for the Fed's policy-setting Federal Open Market Committee.

U.S. Treasury yields were also boosted by news that the infrastructure bill had been passed, while an auction of three-year notes produced strong results. The benchmark 10-year yield hit 1.349%, its highest level since July 15.

Benchmark 10-year notes last fell 9/32 in price to yield 1.3473%, from 1.317% late on Monday.

Adding fuel to the debate, two Fed officials said on Monday that, while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes.

Data on Monday showed that U.S. job openings shot up to a fresh record high in June and hiring also increased.

That followed Friday's nonfarm payroll report showing jobs increased by a larger-than-anticipated 943,000 in July.

While signs of economic recovery in the United States are reviving reflation trade bets, investors remain wary of the lingering risks posed by COVID-19.

China on Monday reported more COVID-19 infections in what seems to be its most severe resurgence of the disease since mid-2020, as some cities added rounds of mass testing in a bid to stamp out infections.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.4% after trading much of the day in the red as worries weighed about the spread of the Delta variant.

With tapering expectations gaining traction, the dollar extended gains made on Friday and Monday.

The dollar index rose 0.106%, with the euro down 0.17% to $1.1717.

Oil prices rose 3% on Tuesday, rebounding from recent losses on signs of rising demand in the United States [O/R]

U.S. crude oil futures settled at $68.29 per barrel, up $1.81 or 2.7%. Brent crude futures settled at $70.63 per barrel, up $1.59 or 2.3%.

U.S. gold futures settled up 0.3% at $1,731.70.

Stocks strengthen; yields, dollar rise on Fed taper talk
 

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Comments (7)
Todd Gray
Todd Gray Aug 10, 2021 11:47PM ET
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I read that about 1 billion in have just exited long positions on the US dollar.
William Bailey
William Bailey Aug 10, 2021 2:37AM ET
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Tapering started weeks and months ago, are people that ill informed? 1.3 trillion in tresuries has already been sold off in the reverse repo markets! Corporate bond purchases , sold! The Fed is simply selling 5 times what they are buying , but pretending to support the wall street crybabies
Todd Gray
Todd Gray Aug 10, 2021 2:37AM ET
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can't remember the act, but banks are required to hold a certain percentage of US treasurys in lieu of cash deposits. that tons of money on deposits been used to buy treasury bonds. so, he's right. been going on for months, and the media, their pundits, and Wall Street are all pretending they don't know it.
Arub Baji
Arub Baji Aug 10, 2021 1:28AM ET
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Delta variant is so yesterday.  We are onto the Lambda variant now.  If you are going to spread fear, make sure you are caught up on current fear talk.  Geesh.  Nothing worse than a late spreading fear mongerer. Elon picked his nose.  Tesla Stock down 22%.  Bitcoin right side up over nose pick. If you are going to do it, do it right.  Can't even spread fear confidentally.  Bait click for love.
Matt Novakovich
Matt Novakovich Aug 10, 2021 12:24AM ET
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wake me when the ilamanatis sell off the s&p
Matt Novakovich
Matt Novakovich Aug 10, 2021 12:23AM ET
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your articles are comedy
Matt Novakovich
Matt Novakovich Aug 10, 2021 12:23AM ET
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shut the xxxz ***
Azhar Ali
Azhar Ali Aug 09, 2021 10:53PM ET
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any one me why gold marked crashed? reason
chrisP bacon
chrisP bacon Aug 09, 2021 10:53PM ET
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They couldn't squeeze any more out of the SP so easier to sell gold to make money and hurt asia traders than to reward retail with SP run up.
 
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